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Finance
27 Nov 2020

The latest Covid measures – Why it’s Not Plain Sailing When Getting a Mortgage

mohammed
mohammed

Now the UK is in the midst of a second lockdown, many of the measures put in place due to the pandemic have been extended.

Mortgage payment holidays will now run until July next year, which should be positive news for homeowners struggling to make repayments due to the pandemic.

The furlough scheme was also extended, potentially helping people keep their jobs. 

However, it appears that lenders are increasingly looking at workers on furlough with caution.

Mortgage payment holidays

The government has worked with the UK’s lenders to extend mortgage payment holidays until 31st July 2021.

Those in need have until 31st March 2021 to apply, while they need to do so before 31st January to get a six-month deferral.

Payment holidays work by allowing people affected by Covid-19 to stop paying for a period, which increases the size of the loan in the long-term but gives them some short-term breathing space.

However, there are some situations where people can’t take out a holiday.

For example, those who have already taken out a six-month payment holiday aren’t eligible for more help, and have instead been directed to contact their lender for what’s been ambiguously labelled “tailored support”.

It’s up to individual lenders to interpret what that means, but given the unprecedented situation we’d hope they’d be sympathetic to those adversely affected by covid-19.

The impact

Taking out a payment holiday shouldn’t impact your credit rating, but you’d expect some lenders to view you more cautiously if you’ve been forced to take one out.

While it depends on the lender, if you’re remortgaging you may need to explain why you needed to take out a holiday to assure them that you’re capable of repaying the new loan.

If there’s any issue with remortgaging at the very least you should be able to take out a product transfer and remain with your existing bank or building society,

Furlough scheme extension 

The UK’s Job Retention Scheme, colloquially known as the furlough scheme, works by placing employees on furlough, with the government paying 80% of people’s wages.

The scheme was launched in March 2020 and was originally scheduled to have ended by now. 

However, with the second lockdown it’s now been extended until March 2021. 

The issue

While the extension to the scheme may sound all well and good, the problem for mortgage customers, and potential customers, is lenders are increasingly reluctant to lend to those on furlough.

According to anecdotal evidence by broker Private Finance, lenders are worried that customers who have been on furlough for some time will lose their jobs once the scheme ends.

This probably locks out some potential homeowners, who are unlikely to be granted a mortgage from a number of lenders until they’re no longer on furlough.

For existing mortgage holders who need to remortgage, some may be forced to stay with the same lender and take out a product transfer, because other lenders may not accept their income.

That’s not to say that it’s impossible to get a mortgage if you’re on furlough.

Some lenders accept furlough income if you have a return to work date in a letter from an employer.

Meanwhile others only accept your income after you’ve returned to work.

Conclusion

If you’re a mortgage holder on either or both of the government schemes it may be trickier when you come to remortgage.

It’s a shame to not be able to compare and utilise the best rates on the market, though it shouldn’t be too much of a big deal if your current mortgage deal is with a lender that offers competitive rates, as you could just take out a product transfer.

If you’re looking to get your first mortgage but you’ve been placed on furlough, you should speak to your employer to get some clarification regarding if and when you’re able to return to work.

Whatever your situation we’d recommend you speak to an expert to guide you through the different lender policies.

It seems Britain’s banks and building societies are trying to find the balance between being sympathetic about the pandemic and not exposing themselves to unnecessary risk – it’s our jobs to navigate you through this period.

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